Does The Amazon-Whole Foods Merger Spell The End Of Grocery Shopping (As We've Known It)?

The news that Amazon is seeking to buy Whole Foods has generated “shock and awe” in financial markets and among market analysts. Some see it as the latest sign that Jeff Bezos (CEO of Amazon) is rapidly taking control of major swaths of the U.S. economy and society. (He bought the Washington Post a few years ago.) Merger opponents say that Amazon’s acquisition of Whole Foods spells the downfall of rival grocery retailers, who will no longer have a volume or price advantage once Amazon’s efficiencies knock down the current “Whole Paycheck” reputation of the store.

Meanwhile, economists like me are wondering what Amazon’s automated processes will mean for the jobs of humans at Whole Foods—and at retail businesses more broadly. How transformative will #AmazonWholeFoods be? Here’s a list of the merger’s likely impacts:

Cutting out the (inefficient) middle man. The positive aspects of Amazon-style automation are that the Amazon online platform is a superior format for the more mundane and purely transactional shopping tasks (the steps of scanning/searching, assessing and comparing different options, and selecting/purchasing). These steps are made more efficiently by putting them in the hands of the “end user” rather than having to go through “middle men” of retail service workers (sales associates to point you to the right aisle, cashiers to check you out). Cutting out “middlemen,” whether in an online or brick-and-mortar retail environment, saves time and makes for more optimal choices, especially when the products and services are rather standardized and routinized (easy to objectively define and describe).

Whole Foods jobs that will go away vs. those that will stay. As automation and expanded use of digital technologies makes the purely transactional part of retail sales more efficient, fewer human workers will be required for those routine/rote/automatable tasks. We won’t need as many cashiers or inventory workers, but that will leave the more sophisticated jobs (those requiring more expertise and interpersonal skills to provide more experiential services) for the human workers. This means Whole Foods will likely end up following the Trader Joe’s model: fewer employees of higher skills, with a bigger role in creating value, leading to higher pay. Not all workers will benefit though: those who can transition and be trained or “up-skilled” from lower- to higher-skilled roles will benefit, but for those who cannot, they will lose their jobs or be forced to move to other companies and industries that are slower to automate away the lower-skilled roles.

Knowledgeable humans still wanted for the food “experience.” Where automation a la Amazon does not have such an advantage is where products and services purchased are sufficiently complex that expert customer service is desired (e.g., what wine would go best with a particular kind of meal), or where an experience is an important part of the retail service (e.g., the opportunity to squeeze the tomatoes or taste the wine in the store, even paired with food, before buying). These are shopping and purchasing experiences that are far more than transactional and hence where humans still have comparative advantages over machines. (One could build a machine-learning algorithm to pair wines with food, but it wouldn’t be the same as hearing and learning from a human sommelier!)

The kind of grocery shopping people enjoying doing, and the kind of grocery job people enjoying working. No longer are grocery stores mostly staffed with cashiers and stockers dealing with shelved items—which used to be of mostly the non-perishable type. Now at stores like Wegmans and yes, Whole Foods, the largest parts of the store with the most workers are in the bakery, deli, beer and wine, seafood, butcher, and prepared food/food court areas. Samples are served; tutorials are given. Grocery/food shopping becomes more of an experience and leisure activity than a task, where service and guidance from a human expert is needed. These newer grocery store jobs involve far more human interaction (and higher quality interaction) than do the (old) cashier and stockroom functions. The lines between food retail and food service are getting blurred, and working at a grocery store—whether it be for Whole Foods or Wegmans or Trader Joe’s—has gotten a lot more interesting these days (as the high degree of employee satisfaction at these companies demonstrates).

Amazon’s automation is most needed in urban Whole Foods stores. Whole Foods has set up stores that have a different emphasis and “vibe” in densely-populated urban areas (serving younger people) versus suburban areas (serving older people). Comparing the Foggy Bottom (D.C.) Whole Foods against the suburban Vienna (VA) one illustrates the point: The Foggy Bottom location has a lot more of the already-prepared foods and beverages that students can “grab and go”—except the slow part of the process is always standing in the long and winding checkout lines! Amazon’s more automated processes will surely help with long queues in urban locations.

In contrast, the suburban Whole Foods customer isn’t (so much) clamoring for greater efficiency. But the Vienna store rarely has long lines, and has a lot more space to house wine tastings or provide Thanksgiving dinner “stations,” where you can plan and order (and sample) various parts of your meal at various degrees of pre-preparation for you. Those services cannot be (completely) automated away and substituted with online transactions without eliminating the “experience.” Customers at the suburban stores would be displeased if they saw the highly skilled and appreciated in-store human workforce declining. At the same time, they wouldn’t complain if, for example, Amazon-like automation could save some time finding parking or checking out.

#AmazonWholeFoods is just another example of services over goods, experiences over things. Because food retail benefits from the increasing blending of experiences with things, food production jobs (even at the manufacturing level) and food sales jobs (at the retail and food service level) have fared better than jobs related to the production and sales of other (mere) “things.” This hearkens to the slow demise of old-style shopping malls and department stores where people go just to buy “things” and the impressive rise of the mixed-use “districts” where people can stroll through green spaces, dine at fine restaurants (not just fast food), take in a movie, and even drink some wine while getting a painting lesson. The run-of-the-mill grocery store where all one does is buy things on one’s grocery list is so passé! (And to the extent that that’s how a person views grocery shopping still, they will now want to do it the Amazon way, not the Whole Foods way. Or certainly not the large standard grocery chain way.)

Amazon gets “ground level” access to the Whole Foods customer. The acquisition provides Amazon with more reach into a particularly high-income, high-profit (“Whole Paycheck”) customer base. More than providing extra “distribution centers,” it helps Amazon develop greater product recognition/reputation and consumer loyalty, as the Amazon brand will be something people can purchase in their neighborhood marketplaces. In effect, it will give Amazon a more human face. Some retail market experts say that Amazon is trying to become (more like) Walmart before Walmart becomes more like Amazon. Amazon is trying to combine the ease and convenience of online shopping with the local pick-up/experience required for perishables and personal services.

So, is this acquisition a good or bad thing? A case can be made on both sides.

Merger proponents can cite benefits to consumers (higher business efficiency, lower prices, and overall higher-quality consumer experience), as well as benefits to workers who are already qualified for or can be trained to move into more interesting, less rote/routinized jobs. Grocery store jobs will generally be “up skilled.”

And merger opponents can claim growing monopolization of the retail sector by one company (Amazon), as well as the loss of lower-skilled jobs that will increase unemployment and reduce job opportunities for lower-skilled workers if they cannot qualify for up-skilled retail jobs.

Amazon has clearly conquered the online marketplace of things, and now they’re branching out to the rest of what people want to buy: in-person experiences involving interactions with real people in real places—but with less waiting in lines and better prices! I’m personally all for that.

Principal Economist at The Conference Board but opinions my own; mom of 4 amazing adults(!); teach economics and yoga (not at same time).